This document discusses the importance of understanding costs and pricing strategies for businesses. It defines different types of costs like direct, indirect, fixed and variable costs. It also explains how to calculate the cost per unit of production and break-even point. The document then discusses various pricing strategies like premium pricing, penetration pricing, price skimming, economy pricing and psychological pricing. It emphasizes the importance of understanding customer needs, costs, competition and market factors in determining the right pricing strategy.

1. COSTING AND
PRICING
Why and How?

2. Objectives
Ang kahalagahan ng tamang pagpresyo sa iyong
produkto
Ano nga mga strategy sa pagpresyo
Ang kahalagahan ng pag costing
Mga paraan ng pag maximize ng iyong kita gamit
ang tamang pagpresyo at costing

3. Why do we need to
understand costs and
know our products
pricing?

4. To be able to….
• Know the correct pricing and to maximize profit
• Aid in business management decision making
• Know whether you are profiting or losing

5. What is cost
An amount that has to be paid or given up in order to
get something.
In business, cost is usually a monetary valuation of
(1) effort
(2) Material
(3) Resources
(4) time and utilities consumed
(5) risks incurred
(6) opportunity forgone in production and delivery of
a good or service.

6. Type of Costs
1. Direct Cost
A direct cost is the material, labor, expense or
distribution cost associated with producing a
product.
2. Indirect
Expense unrelated to producing a good or service

7. Example….
A semiconductor company rents office space in a
building and produces microchips. The wages paid to
the workers and the material used to produce the
microchips are direct costs.
However, the electricity used to power the entire
building is considered an indirect cost because it
appears on one bill and is difficult to trace back to
the semiconductor company.

8. Type of Cost
3. Fixed Cost
Does not vary with the number of goods or services a
company produces.
4. Variable Cost
This type of cost varies depending on the number of
products a company produces. A variable cost increases
as the production volume increases, and it falls as the
production volume decreases.

9. Usually…
Fixed Costs are…
• Depreciation
• Rental Expense
• Supervisory
• Office Supplies
Variable are..
• Direct labor
• Materials

10. Variable Cost….

11. Fixed Cost…

12. How to Measure Cost?

13. Simple Step
1. List all costs
2. Classify
A. Direct Labor
B. Material
C. Overhead
D. Administrative
3. Analyze the behavior
A. Fixed
B. Variable
4. Know the number of production in a given
period. (a month)

14. Why do we need to measure
costs?
Knowing cost per unit helps business owners
determine when they'll turn a profit and helps them
price their products with that in mind.

15. How to know your production
costs per unit…
Cost Amount Total %
Variable Cost
Direct Labor (Variable) 2,000 40%
Direct Material (Variable) 1,000 20%
Overhead (Semi Variable) 500 3,500 10%
Fixed Cost
Depreciation 20 0%
Rent 1,000 20%
Utilities 500 1,520 10%
Total Production Cost 5,020 100%
Divide: Units Produced 502
Cost per Unit 10

16. Why do we need to measure
costs?
It provides a dynamic overview of the relationships
among revenues, costs and profits.
This is why comparison of break-even points is
generally most meaningful among companies

17. What is Break even Point
No
profit
or
loss.

18. Break Even Point in unit

19. Example….
Cost Amount Total %
Variable Cost
Direct Labor (Variable) 2,000 40%
Direct Material (Variable) 1,000 20%
Overhead (Semi Variable) 500 3,500 10%
Fixed Cost
Depreciation 20 0%
Rent 1,000 20%
Utilities 500 1,520 10%
Total Production Cost 5,020 100%
Divide: Units Produced 502
Cost per Unit 10

20. Let’s Compute….
Example:
Variable Cost: 3,500 Selling Price: 20
Fixed Cost: 1,520 Units Produced: 502
Total 5,020
VCU: (3,500÷502)= 6.7
FCU: (1,520÷502)= 3.0
Break Even Point = 1,520_
20-6.7
BEP Units = 114 Units
BEP Sales (460 X 20 ) = 2,280 Pesos

21. Since you already to know your
breakeven point you can…..
Set a price point at which a business will earn zero
profits on a sale…
Price should be more than that price point.

23. What is PRICING….
Decide the amount required as payment
for (something offered for sale).
Pricing strategy is important for
companies who wish to achieve success
by finding the price point where they can
maximize sales and profits.

24. So what are the strategies
A. Premium Pricing
B. Penetration Pricing
C. Economy Pricing
D. Price Skimming
E. Psychological Pricing

25. Premium Pricing
Premium pricing strategy establishes a price higher
than the competitors.
a strategy that can be effectively used when there is
something unique about the product or when the
product is first to market and the business has a
distinct competitive advantage.
A high price designed to reflect quality, reputation
and status.

27. Penetration Pricing
Penetration pricing strategy is designed to capture
market share by entering the market with a low price
relative to the competition to attract buyers.
The idea is that the business will be able to raise
awareness and get people to try the product.
Even though penetration pricing may initially create a
loss for the company, the hope is that it will help to
generate word-of-mouth and create awareness amid a
crowded market category.

29. Android phones are available at a steep discount, in the
hopes that users will become loyal to the brand.
This approach also opens a wider range of consumers up
to the Android marketplace, while Apple embraces a
skimming strategy, providing high-cost products that skim a
small market share off the top.

30. Price Skimming
Designed to help businesses maximize sales on new
products and services, price skimming involves
setting rates high during the introductory phase.
Not only does price skimming help a small business
recoup its development costs, but it also creates an
illusion of quality and exclusivity when your item is
first introduced to the marketplace.

34. Economy Pricing
With this strategy, businesses minimize the costs
associated with marketing and production in order to
keep product prices down. As a result, customers can
purchase the products they need without frills.
Incredibly effective for large companies, an be
dangerous for small businesses. Because small
businesses lack the sales volume of larger
companies,

35. Psychological Pricing
Psychological pricing strategy is commonly used by
marketers in the prices they establish for their
products.
For instance, 99.99 is psychologically "less" in the
minds of consumers than 100. It's a minor distinction
that can make a big difference.

37. Deciding to raise or lower price
One size does not fit all. You can only go so far
pricing all your products based on a fixed markup
from cost.
Consider the following:
• What the market is willing to pay.
• How your company and product are perceived in
the market.
• What your competitors charge.

38. It is a fact of life in business that you will have to
raise prices from time to time as part of managing
your business prudently.
If you never raise your prices, you won't be in
business for long.
You have to constantly monitor your price and your
cost so that you are both competitive in the market
and you make the kind of money you deserve to
make.

39. How to price your products?
1. Know Your Customer
2. Know Your Costs
3. Have a revenue target
4. Know Your Competition

40. Listen to your customers. Try to do this on a regular
basis by getting feedback from customers about your
pricing. Let them know you care about what they
think.
Keep an eye on your competitors. If you don't have
deep pockets and can't afford to hire a market
research team, hire some college students to go out
on a regular basis and monitor what your
competitors are doing.
"The best way to determine if the product is being
priced correctly is to watch sales volumes
immediately after making any change,"

41. Great pricing is all about figuring out
how much your customers value your
product.
The customer is always right...so include them